November 22, 2017 / 10:28 AM / a year ago

CORRECTED-UPDATE 2-As lira plumbs record low, Turkey's Simsek says US problems temporary

(Corrects Haidar Capital Management’s assets under management to $365 million from $365 billion in paragraph 11)

By Behiye Selin Taner and Daren Butler

ISTANBUL, Nov 22 (Reuters) - Turkish Deputy Prime Minister Mehmet Simsek on Wednesday attempted to talk up a lira currency that has hit record lows for two days running, telling investors that a widening rift with the United States was “temporary”.

Investors have hammered the lira since September, sending it down some 17 percent on worries about relations with Washington, and nagging concerns about pressure from President Tayyip Erdogan on the central bank.

Much of the worry stems from the U.S. trial of Turkish gold trader Reza Zarrab, who is accused of violating U.S. sanctions on Iran. Ankara has described the case as a “clear plot against Turkey”, and has accused the U.S. prosecutors of having links to the cleric it blames for last year’s failed coup.

“There are serious fluctuations in Turkish markets recently, we need to understand this calmly, correctly and without panicking,” Simsek said in a speech in Istanbul.

“These are temporary, the problems with the United States and the West are temporary.”

At 1015 GMT, the lira stood at 3.9624 to the U.S. currency, after earlier hitting a new record low of 3.9800.

On Tuesday, the Turkish central bank (TCMB) responded to the sell-off with emergency measures to tighten policy, although those have so far failed to shore up confidence. Investors say that, rather than tweaking policy, the central bank needs a straightforward rate hike.

“The TCMB’s veiled rate hike yesterday was a step taken to buy time ahead of the Dec. 14 MPC (monetary policy committee) meeting and avoid an interim meeting,” said Reel Kapital Securities deputy research manager Enver Erkan.

“We do not see this step having a positive impact in the market because it is not a sufficient move,” he said. “Hence we expect the negative trend in the lira to continue.”

Foreign investors, needed by Turkey to finance its large budget and current account deficits, have deep concerns about political pressure on the central bank. Erdogan, who wants lower interest rates to fuel lending and construction, said last week a lack of government intervention in policy had left Turkey saddled with high inflation.

“We’re not very positive on Turkey in the near term. Eventually, hopefully enough pressure is brought to bear that they push rates up and the currency then does better,” said Said Haidar of Haidar Capital Management, a $365 million global macro hedge fund.

“It’s an ugly looking situation made worse by political issues.”

The yield on the benchmark 10-year bond rose to 13.08 percent in spot trade on Tuesday from 12.68 percent a day earlier. It dipped to 13.01 percent in Wednesday-dated trade.

The main Istanbul share index was up 0.42 percent in early afternoon trade. (Additional reporting by Abhinav Ramnarayan in London; Orhan Coskun and Tuvan Gumrukcu in Ankara; Writing by David Dolan, Editing by William Maclean)

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